There’s been a lot of attention paid to the upcoming election in the UK, and what it means for the country’s spiraling deficit and the health of the pound.
But of course we have our own debt problems, and our own concerns about our currency, and of course our own election coming up in about 7 months.
And according to Raymond James’s superstar strategist Jeff Saut, you better pray (like many are doing in the UK) that the liberals get trounced.
That “cautionary counsel” was driven by numerous indicators we have come to trust over the years. Yet, those indicators have been trumped by the near-term upside momentum. Fortunately,
while trading accounts are not fully engaged, investment accounts are. That strategy is based on the simple thesis that booming corporate profits are fostering an economic recovery, which is leading to an inventory rebuild and a capital expenditure cycle. In turn, said sequence should promote a hiring cycle, and then, a pickup in consumption. We think, in the intermediate-term, such a sequence should bolster stocks into mid-summer, even though we remain cautious as the second quarter begins.
In any case, despite our near-term caution, the aforementioned “virtuous cycle” should persist until the markets begin to discount the 2010 mid-term elections next November. Through our lens, those elections may well serve as a referendum on the liberals’ versus conservatives’ agendas. If the liberals prevail, it could spell a pretty tough year for stocks in 2011. If, however, there is a conservative backlash (read: no tax increases combined with spending cuts), it could provide the footing for a decent 2010 year-end rally. Meanwhile, our “call” for the return of inflation is playing with crude oil and copper breaking out to 20-months price highs. To put it simply, the U.S. has only three options: sovereign default (unimaginable); severe economic contraction (unlikely); or currency debasement, which has been the preferred political strategy for decades.
Fair enough. But we’d caution readers that this is similar to Jim Cramer’s analysis that if Scott Brown were to win in Massachusetts (ushering in a new era of fiscal responsibility) that the market would rally. In fact the market sold off pretty hard for several days and really only rebounded once it became apparent that the Democrats were still in charge, and still had enough political capital (surprisingly) to pass a massively unpopular spending bill (called healthcare reform).
It seems nice to say that the markets want lower taxes and lower spending and more free markets, but if the stock market turns out to be hooked on steroids from Congress and the Fed (free money), those wishing for a GOP victory may want to be careful.
Now don’t miss: the 15 new taxes found in the healthcare bill >
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